Yahoo Finance Dentsply Sirona Inc (XRAY) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges ...
Revenue: $953 million, a decline of 2.6% year-over-year.
Organic Sales Decline: 1.9% due to lower sales in Connected Technology Solutions and Essential Dental Solutions.
Adjusted EPS: $0.42, up 8% from the previous year.
Gross Margin: Flat year-over-year, improved 140 basis points sequentially.
Operating Cash Flow: $25 million, improved from an outflow of $21 million year-over-year.
EBITDA Margin: Expanded by 30 basis points due to restructuring savings and net investment hedges.
Net Sales Adjustment: Adjusted for an additional F/X headwind.
Share Repurchases: Plan to execute up to $150 million in Q2.
Leverage Ratio: Q1 leverage ratio was 2.6x, with a target to end the year at approximately 2.5x.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Dentsply Sirona Inc (NASDAQ:XRAY) reported an 8% increase in adjusted EPS to $0.42, aligning with expectations despite softer sales.
The company is maintaining its full-year outlook for organic sales and adjusted EPS, though trending towards the lower end of both ranges.
Dentsply Sirona Inc (NASDAQ:XRAY) announced plans to execute up to $150 million in share repurchases in the second quarter.
The company highlighted advancements in innovation, particularly with DS Core, which is seeing strong adoption rates and increased utilization from new and existing users.
Dentsply Sirona Inc (NASDAQ:XRAY) is actively executing strategic initiatives, including SKU optimization and supply chain transformation, expected to enhance profitability long-term.
Negative Points
Organic sales declined by 1.9% in Q1, driven by lower sales in Connected Technology Solutions and Essential Dental Solutions.
The macroeconomic environment in Germany remains challenging, contributing to regional sales difficulties.
Imaging equipment within the Connected Technology Solutions segment experienced significant headwinds due to unfavorable macroeconomic conditions and competitive pressure.
The company is adjusting its net sales outlook due to additional foreign exchange headwinds, reflecting the recent strengthening of the dollar.
Dentsply Sirona Inc (NASDAQ:XRAY) is taking a cautious stance with its full-year outlook due to ongoing macro uncertainties, particularly impacting the imaging business.
Q & A Highlights
Q: Maybe to start out on guidance. Last quarter, you called out growth expectations for each of the business. So 1 quarter in, would love to get an update on kind of how you're thinking about growth for each of the businesses. I'd assume CDS kind of comes down, but would love your thoughts on that. A: (Glenn G. Coleman - DENTSPLY SIRONA Inc. - Executive VP & CFO) David, it's Glenn. I'll take that one. So just in terms of sequencing for the year, obviously, with our Q2 guidance color that we provided, we expect to be down organically about 2% in the first half of the year, which would imply we expect to be up close to 3% organically in the back half of the year to get us flat on a full year basis.
Q: Yes, super helpful, Glenn. Maybe I'll ask my follow-up on the North America implants business. Maybe just give an update on kind of how that team is doing. There's -- you've a competitor, who's dealing with their own issues. So I wonder if that maybe accelerates your path to growth. I think original expectations were in the back half and then maybe even to market growth. I think that was in 2026. And then I'd love to hear your thoughts on what market growth actually is currently? A: (Simon D. Campion - DENTSPLY SIRONA Inc. - CEO, President & Director) David, it's Simon. So as you've said before, would you expect to be growing or posting some growth in the back half of the -- of 2024? And then as you said, the plan is to get to market growth by '26. As we've said, we've created a new team. We've given them the tools and the training. We did see some positive signs, I'd say, in the quarter. We're growing in the DSO business in implants. And as you know, that, that part of the dental industry is not going away and is in fact accelerating. The decline of large accounts as for the most part stopped, so we've kind of -- we think we've stemmed the bleeding to a large extent.
Q: Simon, I thought maybe a step back here just a second. You talked about bringing Orthophos SL back to the European market, you've got a lower price treatment center that I think you're launching as well. Obviously, Primescan Connect, a couple 1.5 year, 2 years ago, you launched at that lower price point. You don't rush these decisions out the door if it's just cyclical, if it's just a short-term interest rate shock kind of thing, things like that. So what is this decision to move down the pricing scale, tell us maybe about end markets, about competition, where your competitive positioning that historically with the Sirona brand had been at the premium end, where it's going right now? Would just love kind of your lay of the land there and kind of what's driving your thought process and some of this move to the lower price points? A: (Simon D. Campion - DENTSPLY SIRONA Inc. - CEO, President & Director) I -- in relation to Orthophos SL, Jeff, I think aside from any macro issues, I think that was the discontinuation of that product line a number of years ago was a strategic error, given the mix of dentist willingness to buy value or by premium. And so we had a significant gap we felt in our imaging line that can be addressed by the reintroduction of Orthophos SL. It fills out our line and now offers a set of price positions for different types of dentists and DSOs in Europe, in particular. So it's not a rush decision given the macro situation. It is a gap that we identified, and we're now selling about filling it.
Q: This is Dylan Finley on for Kevin. Question, Simon, in the prepared remarks talked about the tightening of cost controls to enhance profitability. Now is that incremental to all the efficiency reductions you've set forward on the path to the 2026 EPS target? And on a -- from a timing perspective, would these efforts have an impact on the bottom line in 2024? Or is this more of a '25 benefit? A: (Glenn G. Coleman - DENTSPLY SIRONA Inc. - Executive VP & CFO) Thanks for your question. This is Glenn. So I think on the whole, if we see more revenue softness and pressure on our top line, we're going to continue to take actions across the organization in terms of looking at how to be more efficient in different areas of the organization and looking at areas to bring our costs down where we can. So these would be incremental actions if we see additional top line revenue pressure. And obviously, those would be '24 actions.
Q: I was wondering if you could talk a little bit more about the gross margin line. It came in a bit stronger than I had been modeling. I just want to understand, is that sort of just a reflection of mix? Is that a reflection of some of the restructuring efforts that you guys have already changed, I guess, with a view to kind of understand what the sustainability of that looks like across the rest of the year? A: (Glenn G. Coleman - DENTSPLY SIRONA Inc. - Executive VP & CFO) I think gross margins were a little bit better than we were expecting. We were expecting though to see an improvement from where we landed in Q4. Q4 was artificially low. We talked about the reasons back in Q4 around that. So on a year-over-year basis, our margins are essentially flat. I'd expect going forward, what we just produced here in Q1 results of 56.6% or so, it's going to be pretty consistent on a full year basis. I wouldn't expect much of a margin expansion or contraction story. It will probably go down slightly in Q2. And then as we get more volumes in the back half of the year, go back up again.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
